Axis Bank Q3 Results Review - Continues To Outperform ICICI Bank On Slippage: Yes Securities

Yes Securities Report

Gross slippage ratio for Axis Bank Ltd. averages 1.81% over the past seven quarters compared with 2.01% for ICICI Bank Ltd.:

35% of the gross slippages for the quarter were accounts that were standard but linked to a borrower that had otherwise defaulted (on another account) or were accounts that were upgraded in the same quarter.

Provisions for the quarter were Rs 10.28 billion, up by 26.2% QoQ but down by -28.5% YoY, translating to calculated annualised credit cost of 45 bps.

Provision of around Rs 1.82 billion was made towards applicable alternate investments funds pursuant to the RBI circular.

While margin contracted sequentially, Axis Bank can still pull multiple levers to enhance structural margin:

For the quarter, yield on advances improved 6 bps QoQ. The bank has increased pricing on personal loans and is in the process of doing so for NBFC loans.

Cost of deposits increased 15 bps QoQ to 4.94%. Rise in cost of deposits would spill over into Q1 FY25. The levers for margin expansion include share of retail and SME in loan book, share of unsecured loans, segment shift in wholesale loans and share of Rs loans.

As of now, Axis Bank is growing far in excess of the banking system growth but sounded a bit cautious on this front:

Given the focus on loan to deposit ratio, deposit growth would be a key constraint to growth in the near term. Management does not see interest rates in the economy coming down anytime soon.

Over the medium term, management reiterated guidance of growing 400-600 bps higher than banking system loan growth.

We reiterate Buy rating on Axis Bank with a revised price target of Rs 1425:

We had placed Axis Bank as the very top pick for the first time in our report dated May 2022. We value the standalone bank at 2.2 times FY25 price/book value for an FY24E/25E/26E return on equity profile of 17.1%/16.9%/17.1%.

We assign a value of Rs 127 per share to the subsidiaries, on SOTP.

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